The Fed doubled monthly taper to $30 billion, which, if uninterrupted, will wind down QE by the FOMC’s March 17th meeting. The S&P500 briskly popped 1.6% on the news. In response to the market jump, a pundit commented: “They did what was expected. It’s going to add to the credibility for the Fed and that will be on balance neutral to positive for the markets.” Wednesday afternoon’s rally – and, more generally, the week’s volatility - had much more to do with Friday’s December expiration of options and derivatives than Federal Reserve credibility. The S&P500 dropped 1.9% in Thursday and Friday trading.

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It was another volatile week for global markets, stoked by a combination of central bank meetings and heightened COVID anxieties.

December 16 – Financial Times (Chris Giles and James Pickford): “The Bank of England has raised interest rates from 0.1% to 0.25% in its first increase in more than three years, saying that the risks of inflation required it to take pre-emptive action even as the UK is engulfed by the Omicron wave of coronavirus. Surprising financial markets… for the second consecutive month and voting 8-1 in favour of higher interest rates, the bank’s Monetary Policy Committee decided it could no longer wait before seeking to cool spending in the economy. After the meeting Andrew Bailey, BoE governor, said: ‘We’ve seen evidence of a very tight labor market and we’re seeing more persistent inflation pressures’. Admitting that inflation was heading up to around 6%, the governor added: ‘We’re concerned about inflation in the medium term. And we’re seeing things now that can threaten that. So that’s why we have to act.’”

December 16 – Financial Times (Martin Arnold and Tommy Stubbington): “The European Central Bank said it would scale back its crisis bond-buying in response to soaring inflation, but committed to continue asset purchases for at least 10 months and ruled out raising interest rates next year. The decision, which contrasts with a more aggressive withdrawal of crisis support by the US Federal Reserve and Bank of England this week, led to a fall in eurozone bond markets on Thursday as investors absorbed the ECB’s plan to sharply reduce its bond purchases in 2022. Christine Lagarde… said the eurozone economy had recovered enough to allow a ‘step-by-step reduction in the pace of asset purchases’. But she added: ‘Monetary accommodation is still needed for inflation to stabilize at our 2% inflation target over the medium term.’”

Clinging to her uber dovish pre-commitment to no rate hikes in 2022, Christine Lagarde ensures contentious Governing Council meetings, along with more German “madam inflation” rebuke. Lagarde must have one eye fixated on a vulnerable European banking system loaded with periphery debt (i.e. Greece, Italy, Portugal, Spain…). While the Fed and ECB meetings went off as anticipated, the Bank of England surprised the markets with a rate increase despite a record surge in COVID infections. Principled Central Banking.

Powell was widely lauded for his press conference performance. It didn’t hurt that he faced a steady stream of soft-ball questions. For posterity, I’ll chronicle his cogent comments on the labor market, which have evolved remarkably over the past two FOMC meetings.

Powell: "Well, the labor market is, by so many measures, hotter than it ever ran in the last expansion, if you think about it. The ratio of job openings, for example, to vacancies is at all-time highs, quits -- the wages, all those things are even hotter. But what would it take for labor force participation to move up more? You know… “Why is it low?” that is the question. So, there are a bunch of answers and all of them probably have some validity. Part of it will be that for certain people, they don’t want to go back in the labor force because either they’re medically vulnerable or they’re not comfortable going back while COVID is still everywhere. That’s one thing. The lack of availability of childcare made for caretakers is certainly part of it, not just for children, but for older people. It has been pointed out by many that the stock market is high people’s portfolios are stronger, they may go back to being a one-income rather than a two-income family. The same thing with people’s houses, people buy… with leverage, and the house price increases, the equity they have in their home might have doubled. And they might reach the same conclusion. And people have savings on their balance sheet because of forced savings that -- because they couldn’t spend on travel and things like that - and also because of government transfers. So, for all of those reasons, and it’s hard to know exactly the part each of them plays, we have a situation where we’ve had a shock to labor force participation that is not unwinding as quickly as many had expected.”

December 16 – Financial Times (Rich Miller, Steve Matthews and Christopher Condon): “Federal Reserve Chair Jerome Powell signaled on Wednesday that inflation is now enemy No. 1 to keeping the U.S. economic expansion on track and returning the labor market to something approaching ebullient pre-pandemic levels. In an abrupt policy pivot, the Fed sped up the drawdown of its asset-purchase program and laid out a road map for a series of interest-rate increases over coming years, starting with three hikes in 2022. Powell also raised the possibility that the central bank might begin to withdraw liquidity from the financial system before too long by reducing its massive balance sheet.”

The above article ran with the headline, “Powell Declares Inflation Big Threat as Fed Signals Rate Hikes.” And while stocks initially surged, the bond market had a muted response to Powell. Ten-year Treasury yields ended the week down eight bps to 1.40%. With the Fed now promptly winding down QE and apparently soon to commence a rate hike cycle, such low Treasury – and global – yields remain somewhat of a conundrum.

From the Credit Bubble analytical perspective, Treasury, Bund, and “developed” yields more generally confirm the view that the global central bank community’s so-called “tightening” cycle will be curtailed by faltering Bubbles.

December 14 – Reuters (Liangping Gao and Ryan Woo): “China's property market suffered more headwinds in November, with home prices, sales, investment and construction all falling, weighed by weak demand and a cash crunch among developers… ‘Cities of all classes are under pressure,’ said Yan Yuejin, director of… E-house China Research and Development Institution. ‘The current scale of market supply is large and demand is weak. The key is to accelerate inventory de-stocking to stabilize home prices…’ ‘For the supply side, new construction starts as measured by floor area tumbled 21.03% on year in November, down for the eighth month, while property investment by developers fell 4.3%.’”

Rocked by troubles at Shimao (yields surging to 130% Wednesday after closing the previous week at 30%), Chinese developer bonds gave back much of last week’s policy-induced rally. Shimao was considered one of the more financially stable developers, with yields beginning October at 5.5%.

December 16 – Bloomberg: “China Fortune Land Development Co. said it has been unable to get hold of a money manager that it gave $313 million for investment, the latest blow for the debt-laden developer. Fortune Land has ‘lost contact’ with China Create Capital Ltd., a British Virgin Islands-registered firm to which it handed over $313 million in 2018 in hopes of receiving an annual return of 7%-10% through 2022, it said in a filing…”

How rotten are some of these developers – and high-yield Chinese Credits more generally? An index of Chinese high-yield dollar bonds saw yields this week jump 150 bps to 21.6%, giving up much of the previous week’s rally. Whether it’s apartment sales and prices, property investment or industrial production, recent data confirm waning Chinese growth. At a disappointing 3.9% (expectations 4.7%), November Retail Sales adjusted for inflation were barely positive year-on-year.

Especially late in the week, global markets were rocked by the prospect of a rapidly building wave of Omicron infections. China’s Shanghai Composite was down 1.16% in Friday trading. While China’s “zero tolerance” policy has been highly effective in containing the Delta variant, Omicron’s timing is problematic.

Future historians will surely identify the pandemic as a pivotal development in a cycle of extraordinary global innovation and excess. COVID erupted at the tail end of a historic Bubble, with late-cycle fragilities particularly apparent within Chinese and U.S. Bubbles (Fed QE commenced in September 2019). Omicron’s timing is similarly opportunistic. With inflation raging globally, central banks have begun pulling back unprecedented global monetary inflation. The Fed and others are reducing bond purchases, while the Bank of England and scores of developing central banks have commenced rate normalization.

December 17 – UK Guardian: “The UK reported 93,045 new COVID cases today, breaking the daily record for the third consecutive day. There were also 111 new COVID deaths reported and 7,611 patients in hospital, 875 of whom were on beds with ventilators. It comes after yesterday there were 88,376 new cases reported and 78,610 new cases the day before, both breaking all previous pandemic records.”

At this point, let’s assume that Omicron symptoms are less severe than Delta’s. But it’s transmissibility that today poses major global risks. Studies suggest most populations are highly exposed to infection. The variant has been shown to evade immunity, both from vaccines and previous infections. Booster shots should provide significant protection, though only about 17% of the U.S. population is today fully vaccinated.

A Bloomberg summary (Trevor Bedford): “U.K. data show increased household transmission risk, increased secondary attack rates (such as the chance of each case infecting another individual) and increased growth rates compared to delta. That means omicron is likely to out-compete delta and predominate there, the UKHSA said Dec. 8. A previous COVID-19 recovery provides little shield against infection with the omicron variant, a research team from Imperial College London showed... Having had COVID probably offers only 19% protection against omicron, the study showed Dec. 17. That was roughly in line with two doses of vaccine, which the team estimated were as much as 20% effective against omicron. Adding a booster dose helped dramatically, blocking an estimated 55% to 80% of symptomatic cases.”

COVID highlights from Bloomberg: “New York state is experiencing a dramatic spike in COVID-19 cases. The state reported 21,027 new cases Friday…, surpassing the previous record of 19,942 set in January. Of the roughly 263,500 people tested, 7.98% were positive for the virus. The rapid rise comes in lockstep with the emergence of the omicron variant…”

“Positive tests from Cornell University students show a high rate of omicron transmission among 18-to-24 year-olds… Among a batch of 115 positive cases, prioritized for sequencing due to the rapid spread observed, all showed infection from the omicron variant…”

“Texas has seen a 43% rise in new cases in the past week as hospitals in some regions of the second-largest U.S. state grapple with the latest wave. There were 5,011 new cases reported in the past 24 hours, a 17% increase in one day…”

With Delta surging nationally and warnings of an imminent spike in Omicron infections (with already stressed hospitals), the return of mandates, restrictions, and canceled entertainment and sporting events - there’s some dread that we’re returning to the March 2020 nightmare. But experts counter that we are today so much better prepared than at the start of the pandemic (i.e. vaccines, therapeutics, knowledge and experience, etc.). I do, however, fear that pandemic fatigue and some dismissiveness now associated with COVID – especially Omicron with its seemingly mild symptoms – leave us awfully vulnerable.

Global markets appear acutely vulnerable. Crisis dynamics took a turn for the worse in Turkey. The lira sank another 15.4% this week, pushing the currency’s November/December decline to 41.5% (down 54.7% y-t-d). Turkey’s central bank intervened for the fifth time this month to support the lira, further depleting already sparse international reserves. Turkey’s $125 billion of short-term foreign-denominated debt looms large. Turkish lira bond yields surged 79 bps Friday to a record 21.4%. Turkey’s sovereign CDS spiked 78 higher this week to an 18-year high 578 bps. Ominously, the Turkish equities melt-up reversed sharply lower in Friday trading, with trading halts triggered twice before stocks ended the session down 8.5%. Who’s next?

The faltering Chinese Bubble unleashed contagion upon the emerging markets. Ongoing QE from the Fed, ECB and others (not to mention booming U.S. markets and economic growth) have so far helped to cushion the blow. Perceptions that Beijing has everything under control further explain the relatively moderate contagion dynamic.

Going forward, Omicron’s pandemic invigoration has the potential to spur a more forceful global de-risking/deleveraging dynamic. While Turkey took the brunt, this week saw the Columbian peso drop 3.2%, the Brazilian real 1.4%, Russian ruble 1.1%, Hungarian forint 1.0% and Polish zloty 0.8%. Local currency yields surged 40 bps in Brazil, 25 bps in Czech Republic, and 11 bps in Indonesia.

I’ll note a couple Friday Bloomberg headlines, “The Fed’s Talk of Raising Rates Has Made Them Go Down Instead,” and “Rates Market Calls Fed’s Bluff After Historical Hawkish Pivot.” Five-year Treasury yields this week dropped eight bps to 1.18%, with two-year yields declining two bps to 0.64%. My headline chuckle of the week was courtesy of Dow Jones: “Federal Reserve Officials Complete Policy Pivot in Face of High Inflation.”

Much premature for mission accomplished. I don’t fault the bond market for assuming the Fed’s “tightening” cycle goes nowhere. After all, unfolding global contagion and “risk off” could stop the Fed’s timid little tip-toeing in its tracks. The stock market, of course, is cocksure the Fed will continue to do whatever it takes to sustain the forever bull market. Our central bank for a while now has ensured that disregarding risk pays off handsomely.

It was 22 months ago (2/21/20) that I titled a CBB “Pandemic Risk Rising.” The S&P500 traded that Friday at an all-time high. Clearly, escalating risks were being completely disregarded. I’m going this week with “Pandemic Risks Rising – Again.” I hope this analysis turns out embarrassingly amiss.

After being first identified in South Africa just four weeks back, Omicron is now spreading in at least 77 countries. Seventeen days ago, the first case was detected in the U.S. It has speedily made its way to at least 40 states. Worse yet, Omicron launched its exponential growth right into the holiday season and winter months – collaborating with dangerous Delta (with national hospitalizations up 20% over the past week). Models warn of the potential for daily infections to surpass a mind-numbing 500,000. Hospitals across the country already face acute fatigue, along with shortages of nurses and other healthcare professionals.

Let’s assume that Omicron symptoms are less severe and lethal. But that wouldn’t diminish myriad risks to the economy and markets. Even if governments are determined to refrain from painful lockdowns, a massive wave of infections would create challenges for many businesses to continue with normal operations. If COVID is running rampant, would people rationally choose to hole up in the safety of their homes? Many are making such decisions in London and throughout the UK.

I worry about already stretched supply chains. In the event of mass infections of a highly transmissible virus, scores of manufacturers may struggle to maintain adequate staffing. Workers in meat and food processing plants might not be falling seriously ill as in the initial COVID wave, but positive test results would nonetheless send them into quarantine. Can we keep our depleted truck-driver force healthy? Everyone is determined to do everything possible to ensure our schools remain open. Mild symptoms or not, a massive wave would prove too much to bear. How about travel and leisure? We’re all sick and tired of COVID and want our normal lives back. We can’t allow mild “flu” symptoms to hold us back. And this is exactly the mindset that could provide Omicron an opening not enjoyed by Alpha or Delta.

How about global supply chains? What’s unfolding in the UK and Europe is frightening. Asia is struggling even before Omicron takes hold. A Thursday headline: “South Korea Reimposes COVID-19 Curbs Amid ‘Mayhem’ at Hospitals.” After so successfully containing COVID earlier in the pandemic, the virus is now spiraling out of control in South Korea.

And what if China’s “zero tolerance” strategy backfires – perhaps epically? A Friday headline: “China Manufacturing Hub Locks Down Over Coronavirus, Threatening Economy.” Omicron’s extraordinary transmissibility will only compound containment challenges. The effectiveness of China’s vaccines in protecting against Omicron is in doubt, while “zero tolerance” policies have spawned a population with minimal acquired natural immunity. Also, throw the population density of Chinese cities into the analytical mix. And it’s now only about six weeks until the Beijing Winter Olympics.

It’s not unreasonable to assume China won’t be able to hold the virus in check. That would mean lockdowns and an economic body blow to a fragile system already in concussion protocol. There is tremendous national pride in hosting the Olympics. But come February, will Beijing be willing to take the risk?

In the event of a powerful wave, I worry about supply chains both domestic and international. We all remember panic buying of toilet paper early in the pandemic. We’ve all experienced the inability to purchase various products previously in abundant supply. Whether households or businesses, “just in time inventory” has revealed its shortcomings. Inflationary dynamics have taken root. The psychological elements are in place for a bout of stocking up to unleash panicked hoarding.

The probabilities of a problematic Big Wave are rapidly increasing. Pandemic Risks Rising – Again. And if this scenario materializes, Fed policymaking will emerge as one of the great risks. Safe to say taper will be heaved out the window. If markets buckle under the weight of another March 2020-type de-risking/deleveraging, will the Fed’s Trillions again rise to the rescue of (ever larger) Bubble markets? And what might that mean for already powerful inflationary dynamics and hoarding?

 

For the Week:

The S&P500 dropped 1.9% (up 23.0% y-t-d), and the Dow fell 1.7% (up 15.5%). The Banks sank 2.9% (up 32.3%), while the Broker/Dealers were little changed (up 26.8%). The Transports slumped 3.5% (up 26.6%). The Utilities declined 1.1% (up 11.5%). The S&P 400 Midcaps fell 1.9% (up 18.3%), and the small cap Russell 2000 lost 1.7% (up 10.1%). The Nasdaq100 dropped 3.2% (up 22.6%). The Semiconductors sank 3.9% (up 34.5%). The Biotechs surged 6.0% (down 2.9%). With bullion gaining $15, the HUI gold index rallied 2.3% (down 17.4%).

Three-month Treasury bill rates ended the week at 0.03%. Two-year government yields declined two bps to 0.64% (up 52bps y-t-d). Five-year T-note yields dropped eight bps to 1.18% (up 81bps). Ten-year Treasury yields fell eight bps to 1.40% (up 49bps). Long bond yields dropped seven bps to 1.81% (up 16bps). Benchmark Fannie Mae MBS yields declined four bps to 2.03% (up 69bps).

Greek 10-year yields sank 17 bps to 1.19% (up 57bps y-t-d). Ten-year Portuguese yields fell five bps to 0.26% (up 23bps). Italian 10-year yields dropped seven bps to 0.90% (up 35bps). Spain's 10-year yields declined two bps to 0.34% (up 29bps). German bund yields fell three bps to negative 0.38% (up 19bps). French yields declined three bps to negative 0.03% (up 31bps). The French to German 10-year bond spread was unchanged at 35 bps. U.K. 10-year gilt yields increased two bps to 0.76% (up 56bps). U.K.'s FTSE equities index slipped 0.3% (up 12.5% y-t-d).

Japan's Nikkei Equities Index added 0.4% (up 4.0% y-t-d). Japanese 10-year "JGB" yields slipped a basis point to 0.05% (up 3bps y-t-d). France's CAC40 declined 0.9% (up 24.8%). The German DAX equities index dipped 0.6% (up 13.2%). Spain's IBEX 35 equities index declined 0.6% (up 2.9%). Italy's FTSE MIB index lost 0.4% (up 19.7%). EM equities were mostly lower. Brazil's Bovespa index declined 0.5% (down 9.9%), while Mexico's Bolsa jumped 2.3% (up 18.9%). South Korea's Kospi index added 0.2% (up 5.0%). India's Sensex equities index dropped 3.0% (up 19.4%). China's Shanghai Exchange fell 0.9% (up 4.6%). Turkey's Borsa Istanbul National 100 index gained 2.4% (up 41.2%). Russia's MICEX equities index slumped 1.0% (up 13.2%).

Investment-grade bond funds saw outflows of $2.262. billion, while junk bond funds posted negative flows of $200 million (from Lipper).

Federal Reserve Credit last week jumped $53.4bn to a record $8.675 TN. Over the past 118 weeks, Fed Credit expanded $4.948 TN, or 133%. Fed Credit inflated $5.864 Trillion, or 209%, over the past 475 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week declined $7.8bn to a one-year low $3.438 TN. "Custody holdings" were down $63.7bn, or 1.8%, y-o-y.

Total money market fund assets were unchanged at $4.636 TN. Total money funds increased $347bn y-o-y, or 8.1%.

Total Commercial Paper slipped $2.4bn to $1.087 TN. CP was up $89bn, or 9.0%, year-over-year.

Freddie Mac 30-year fixed mortgage rates gained two bps to 3.12% (up 45bps y-o-y). Fifteen-year rates fell four bps to 2.34% (up 13bps). Five-year hybrid ARM rates were unchanged at 2.45% (down 34bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down one basis point to 3.24% (up 35bps).

Currency Watch:

For the week, the U.S. Dollar Index advanced 96.57 (up 7.4% y-t-d). For the week on the upside, the South African rand increased 0.6%, and the Mexican peso rose 0.3%. For the week on the downside, the Brazilian real declined 1.4%, the Canadian dollar 1.3%, the Norwegian krone 1.0%, the Swedish krona 0.8%, the New Zealand dollar 0.7%, the Australian dollar 0.7%, the euro 0.7%, the Swiss franc 0.2%, the British pound 0.2%, the Singapore dollar 0.2%, and the Japanese yen 0.2%. The Chinese renminbi declined 0.08% versus the dollar (up 2.38% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index dipped 0.5% (up 23.5% y-t-d). Spot Gold gained 0.9% to $1,798 (down 5.3%). Silver rose 0.8% to $22.37 (down 15.3%). WTI crude declined 81 cents to $70.86 (up 46%). Gasoline dipped 0.7% (up 51%), and Natural Gas sank 6.0% (up 45%). Copper added 0.2% (up 22%). Wheat fell 1.3% (up 21%), while Corn increased 0.6% (up 23%). Bitcoin dropped $1,095, or 2.3%, this week to $46,402 (up 60%).

Coronavirus Watch:

December 17 – CNN (Travis Caldwell): “The coronavirus will hit millions of Americans in a ‘viral blizzard’ within a few weeks as infections from the Omicron variant pile on top of Delta, an expert predicts. Already, hospitalizations are rising as the holiday season gets into full swing. Long lines for COVID-19 testing formed Thursday in metro areas, including New York, Boston and Miami. The Delta variant remains a problem. And Omicron, with its high transmissibility, could strike millions more soon, said Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota. ‘We're really just about to experience a viral blizzard… In the next three to eight weeks, we're going to see millions of Americans are going to be infected with this virus, and that will be overlaid on top of Delta, and we're not yet sure exactly how that's going to work out.’”

December 14 – CNBC (Spencer Kimball): “The World Health Organization… warned the new COVID-19 omicron variant is spreading faster than any previous strain, and it is probably present in most countries of the world. ‘Omicron is spreading at a rate we have not seen with any previous variant,’ WHO Director-General Tedros Adhanom Ghebreyesus said… ‘Seventy-seven countries have now reported cases of omicron. And the reality is that omicron is probably in most countries, even if it hasn’t been detected yet.’”

December 15 – CNBC (Matt Clinch): “Jenny Harries, CEO of the U.K. Health Security Agency, has given a stark warning of the threat that the new heavily mutated COVID-19 omicron variant poses to the country. Harries said the new strain is ‘probably the most significant threat’ since the start of the coronavirus pandemic.”

December 17 – Bloomberg (Naomi Kresge and Irina Anghel): “A previous COVID-19 recovery provides little shield against infection with the omicron variant, a research team from Imperial College London showed in a large study that underlines the importance of booster shots. Having had COVID probably only offers 19% protection against omicron, the study showed... That was roughly in line with two doses of vaccine, which the team estimated were as much as 20% effective against omicron. Adding a booster dose helped dramatically, blocking an estimated 55% to 80% of symptomatic cases.”

December 16 – New York Post (Ben Kesslen): “A new study out of Columbia University says the Omicron variant is ‘markedly resistant’ to vaccines and boosters might not do much to help, spelling bad news for the country as Omicron spreads and COVID-19 cases rise nationally. ‘A striking feature of this variant is the large number of spike mutations that pose a threat to the efficacy of current COVID-19 vaccines and antibody therapies,’ according to the study authored by more than 20 scientists at Columbia and the University of Hong Kong.”

December 14 – Reuters (Michael Erman and Julie Steenhuysen): “All three U.S.-authorized COVID-19 vaccines appear to be significantly less protective against the newly-detected Omicron variant of the coronavirus in laboratory testing, but a booster dose likely restores most of the protection… The study from researchers at Massachusetts General Hospital (MGH), Harvard and MIT… tested blood from people who received the Moderna (MRNA), Johnson & Johnson (JNJ) and Pfizer/BioNTech (PFE, BNTX) vaccines against a pseudovirus engineered to resemble the Omicron variant.”

December 15 – Associated Press (Laura Ungar and Carla K. Johnson): “The new omicron coronavirus mutant speeding around the world may bring another wave of chaos, threatening to further stretch hospital workers already struggling with a surge of delta cases and upend holiday plans for the second year in a row… But even if omicron proves milder on the whole than delta, it may disarm some of the lifesaving tools available and put immune-compromised and elderly people at particular risk as it begins a rapid assault on the United States. ‘Our delta surge is ongoing and, in fact, accelerating. And on top of that, we’re going to add an omicron surge,’ said Dr. Jacob Lemieux, who monitors variants for a research collaboration led by Harvard Medical School. ‘That’s alarming, because our hospitals are already filling up. Staff are fatigued,’ leaving limited capacity for a potential crush of COVID-19 cases ‘from an omicron wave superimposed on a delta surge.’”

December 14 – NBCNY (Jenifer Millman): “The highly infectious omicron variant is rapidly increasing prevalence across the U.S. but even more so in New York and New Jersey, where genomic sequencing is detecting it at a rate of about 13% versus 3% nationally, the head of the CDC says. Delta… remains America's predominant strain (96.7% of all sequenced positive COVID samples) and is fueling the nationwide hospitalization spike, Dr. Rochelle Walensky said… But omicron could overtake delta before long, just as the latter overwhelmed alpha this past spring, Walensky said. It already accounts for 3% of all U.S. cases tested.”

December 15 – CNN (Elizabeth Stuart and Sarah Boxer): “Cornell University reported 903 cases of COVID-19 among students between December 7-13, and a ‘very high percentage’ of them are Omicron variant cases in fully vaccinated individuals… The school's COVID-19 dashboard was updated late Tuesday afternoon, accounting for the jump in case numbers reported. ‘Virtually every case of the Omicron variant to date has been found in fully vaccinated students, a portion of whom had also received a booster shot,’ said Vice President for University Relations Joel Malina… As of result, the school has decided to shut down its Ithaca, New York, campus, where it has about 25,600 students. Cornell's overall vaccination rate among students is 97%.”

December 12 – Reuters (Roshan Abraham and Aparupa Mazumder): “The United States on Sunday reached 800,000 coronavirus-related deaths, according to a Reuters tally, as the nation braces for a potential surge in infections due to more time spent indoors with colder weather and the highly transmissible Omicron variant of the virus. The milestone means the U.S. death toll from this one virus now exceeds the entire population of North Dakota.”

December 15 – Financial Times (Jamie Smyth and Caitlin Gilbert): “Health experts have warned the US faces a huge challenge to contain the fast-spreading Omicron variant of COVID-19 due to relatively low vaccination rates, inadequate testing and inconsistent rules about mitigation measures such as mask wearing. The emergence of the new strain comes as healthcare systems in some US states struggle to cope with a wave of infections caused by the Delta variant, which has pushed the total number of COVID deaths to 800,000. This somber milestone, equivalent to one in every 411 Americans, coincides with the first anniversary of the vaccine rollout in the country, which has since stalled with only 61% of citizens fully vaccinated.”

December 15 – Daily Mail (Lauren Lewis For Mailonline): “A senior official in the World Health Organization has warned he has ‘never been more concerned about COVID-19 than I am tonight’. Special envoy on COVID-19 to the WHO Dr David Nabarro said the spread of the Omicron variant was 'unprecedented' and presents ' serious' issue for not only the UK but 'Europe and the World'. He called on 'every single human being' to do 'everything they can' to minimize social contacts, wear facemasks and practice good hygiene to prevent transmission of the super-mutant strain. It comes after Britain today announced its highest ever daily COVID cases since the pandemic began with 78,610 people testing positive in the past 24 hours.”

December 15 – CNBC (Spencer Kimball, Nate Rattner and Annika Kim Constantino): “When the first wave of COVID infections hit the U.S. in March 2020, health-care workers at Pennsylvania’s largest hospital system expected the crisis to last six months at most. More than a year-and-a-half later, University of Pittsburgh Medical Center is fighting another COVID wave, driven by the highly contagious delta variant. ‘We expected this to be a three- to six-month crisis and then we expected it to be over — instead it’s 20 months,’ Dr. John Goldman, an infectious disease expert at UPMC…, told CNBC. ‘We have been very busy since essentially March of 2020. It is very hard for people to continue that level of intensity.’”

December 16 – Bloomberg (Elaine Chen and Nic Querolo): “New York City appears to be no match for the convergence of the delta and omicron variants, despite some of the toughest COVID-19 restrictions and highest vaccination rates in the U.S. Just as the city was getting more crowded and office vacancies were starting to shrink, an about-face has people again on edge. New cases of the virus are at the highest since January. Businesses are asking workers to stay home, schoolrooms are shutting and testing sites have long lines snaking around city blocks. And Broadway shows and restaurants are closing down as staff shortages and pockets of COVID outbreaks sprout up around the city at the busiest time of the year for tourism. ‘We’ve never seen this before in NYC,’ Jay Varma, public health adviser to Mayor Bill de Blasio, said... ‘Test positivity doubling in three days.’”

December 14 – Bloomberg (Antony Sguazzin): “Leading scientists cautioned that the level of immunity against the coronavirus among South Africa’s population due to earlier infections may be masking the severity of illness caused by the omicron variant. Since the discovery of the variant in South Africa and Botswana was announced on Nov. 25, hospitalization rates in South Africa have risen, though at a much slower pace than in previous waves, even as cases are rising more rapidly. The number of deaths has also been lower.”

Market Mania Watch:

December 12 – Wall Street Journal (Michael Wursthorn): “A historic surge of cash has swept into exchange-traded funds, spurring asset managers to launch new trading strategies that could be undone by a market downturn. This year’s inflows into ETFs world-wide crossed the $1 trillion mark for the first time at the end of November, surpassing last year’s total of $735.7 billion… That wave of money, along with rising markets, pushed global ETF assets to nearly $9.5 trillion, more than double where the industry stood at the end of 2018. Most of that money has gone into low-cost U.S. funds that track indexes run by Vanguard Group, BlackRock and State Street, which together control more than three-quarters of all U.S. ETF assets.”

December 14 – Bloomberg (Sridhar Natarajan and Hannah Levitt): “The two Wall Street investment-banking titans dominating this year’s deal-making frenzy are opening up their wallets to try to keep their bankers happy – and ratcheting up pressure on rivals to follow suit. Goldman Sachs… may boost its bonus pool for investment banking by about 50%, and JPMorgan… may reach for a 40% increase, according to people… The business, which covers merger-and-acquisition advisory as well as underwriting groups, is poised for the biggest windfalls after recent meetings to set pay for the year, the people said, asking not to be named discussing internal talks.”

Market Instability Watch:

December 15 – Bloomberg (Michael MacKenzie and Liz Capo McCormick): “The hottest rate of inflation in four decades has ushered in a wilder era of bond-market volatility, causing investors to shop for hedges to protect their portfolios. Bouts of Treasury volatility tend to erupt when hawkish shifts in central bank policy loom over the market. That has already started after Federal Reserve Chairman Jerome Powell said he was retiring the word ‘transitory’ in describing inflation, helping send an index of expected swings in Treasuries to a 20-month high.”

December 17 – Reuters (Gaurav Dogra and Patturaja Murugaboopathy): “Global bond funds posted huge outflows in the week ended Dec. 15, as investors anticipated that major central banks would shift the direction of their monetary policy during key policy meetings this week, pressured by soaring inflation levels. Investors offloaded global bond funds of $6.91 billion, marking their biggest weekly net selling since April 8, 2020, Refinitiv Lipper data showed.”

December 13 – Bloomberg (Rich Miller): “Former U.S. Treasury Secretary Lawrence Summers warned of the risk of a ‘spontaneous deflating of financial markets’ that have been pumped up by retail buying and exuberant investors. There is ‘a lot of euphoria,’ Summers said… -- pointing, among other things, to cryptocurrencies, so-called meme stocks and technology shares. ‘Super-excited retail is usually a sign of trouble to come,’ he added.”

December 13 – Bloomberg (Ye Xie and Liz Capo McCormick): “Treasury investors are losing more money than they have in four decades, once inflation is taken into account. And if markets are right, they’re unlikely to come out ahead for years. The federal government’s debt has already lost about 2% outright over the past year… But on top of that, the consumer price index has surged 6.8%, putting investors even deeper in the hole. Taken together, that’s resulting in the worst real returns -- or those adjusted for inflation -- since the early 1980s, when then Fed Chair Paul Volcker was in the midst of fighting a wage-price spiral.”

Inflation Watch:

December 14 – CNBC (Jeff Cox): “Wholesale prices increased at their quickest pace on record in November in the latest sign that the inflation pressures bedeviling the economy are still present… The producer price index for final demand increased 9.6% over the previous 12 months after rising another 0.8% in November. Economists had been looking for an annual gain of 9.2%... Excluding food, energy and trade services prices rose 0.7% for the month, putting core PPI at 6.9%, also the largest gain on record.”

December 13 – Bloomberg (Reade Pickert): “While most gauges of U.S. rents and home prices are surging -- some at double-digit rates -- the government’s consumer price index shows housing costs rising at a much tamer pace, a disparity that’s getting some high-profile attention. ‘Rent of shelter’ -- a category that makes up a third of the CPI basket of goods and services prices -- is up 3.9% from November 2020. That’s the most in 14 years but still pales in comparison to many private-sector metrics.”

December 13 – Financial Times (Philip Georgiadis): “The cost of flying cargo around the world has reached record levels as companies attempt to meet surging demand in the run-up to Christmas. Prices have nearly doubled on key air freight routes linking manufacturing hubs in China to consumers in the US and Europe over the past three months… Prices on routes from Shanghai to North America reached $14 per kilogramme for the first time last week, up from $8 at the end of August and above the previous record of $12 achieved when the pandemic first hit supply chains in early 2020.”

December 13 – Wall Street Journal (Amrith Ramkumar): “Lithium prices are rising at their fastest pace in years, setting off a race to secure supplies and fueling worries about long-term shortages of a vital ingredient in the rechargeable batteries that power everything from electric vehicles to smartphones. An index of lithium prices… doubled between May and November and is up some 240% for the year.”

Biden Administration Watch:

December 16 – NPR (Kelsey Snell, Deirdre Walsh and Alana Wise): “President Biden in a Thursday evening statement acknowledged the roadblocks his nearly $2 trillion social spending package faced, saying that it could take weeks before the package was ready for a vote. Still, he said he would continue to push for the bill to get enough Democratic support to pass through the Senate. ‘It takes time to finalize these agreements, prepare the legislative changes, and finish all the parliamentary and procedural steps needed to enable a Senate vote. We will advance this work together over the days and weeks ahead’ Biden said. The statement came after Senate Democrats appeared on the verge of abandoning their pledge to pass Biden's plan before Christmas.”

December 15 – Wall Street Journal (Andrew Duehren and Richard Rubin): “Democrats braced for weeks of delay and uncertainty on their roughly $2 trillion education, healthcare and climate package they had hoped to finish by year end, as efforts faltered to secure the pivotal support of Sen. Joe Manchin (D., W.Va.) for the bill. President Biden spoke with Mr. Manchin at least twice this week to try bringing him on board with the bill, which will need the support of all 50 members of the Senate Democratic caucus to pass. But Mr. Manchin has so far stood by his central critique of the package: that it temporarily funds programs that Democrats intend to later make permanent, as a way to disguise the full price of its provisions. At issue in the talks between Messrs. Biden and Manchin is the child tax credit, which Democrats made more generous, offered to low-income Americans who owe no income taxes and began distributing in monthly cash installments earlier this year.”

Federal Reserve Watch:

December 15 – Bloomberg (Matthew Boesler and Olivia Rockeman): “Federal Reserve officials intensified their battle against the hottest inflation in a generation by shifting to end their asset-buying program earlier and signaling they favor raising interest rates in 2022 at a faster pace than expected. Heralding one of the most hawkish policy pivots in years, the central bank said… it will double the pace at which it’s scaling back purchases of Treasuries and mortgage-backed securities to $30 billion a month, putting it on track to conclude the program in early 2022, rather than mid-year as initially planned. Projections published alongside the statement showed officials expect three quarter-point increases in the benchmark federal funds rate will be appropriate next year…”

December 11 – Financial Times (James Politi and Colby Smith): “Moderate Democrats are pushing the Federal Reserve to move more aggressively towards tighter monetary policy to stamp out inflation, in a sign of their mounting concern about the political fallout from high prices. The pressure on the US central bank from the centrist wing of the Democratic party has increased ahead of next week’s Federal Open Market Committee meeting… It reflects growing unease within Joe Biden’s party that high inflation could prove toxic with voters in the 2022 midterm elections…”

December 12 – Bloomberg (Eric Martin): “Allianz SE’s Mohamed El-Erian said the Federal Reserve needs to move fast to regain control of the inflation narrative, denouncing Chairman Jerome Powell’s prior assurance that price increases are short-term. ‘The characterization of inflation as transitory -- it’s probably the worst inflation call in the history of the Federal Reserve,’ El-Erian said… ‘It results in a high probability of a policy mistake… So the Fed must quickly, starting this week, regain control of the inflation narrative and regain its own credibility. Otherwise, it will become a driver of higher inflation expectations that feed off themselves.’”

U.S. Bubble Watch:

December 15 – Bloomberg (Olivia Rockeman): “U.S. retail sales rose by less than forecast in November, suggesting that consumers are tempering purchases against a backdrop of the fastest inflation in decades. The value of overall retail purchases increased 0.3%, the smallest advance in four months after a revised 1.8% gain in October… Excluding gas and motor vehicles, sales climbed 0.2% in November. The figures aren’t adjusted for inflation.”

December 16 – Bloomberg (Jordan Yadoo): “U.S. home construction starts strengthened in November to the fastest pace in eight months, suggesting builders are making a bit more headway on backlogs even as supply and labor constraints linger. Residential starts rose 11.8% last month to a 1.68 million annualized rate… The median estimate in a Bloomberg survey of economists called for a 3.1% gain in November from the prior month, and a 1.57 million pace. Applications to build, a proxy for future construction, climbed to an annualized 1.71 million units in November.”

December 13 – Associated Press (Ken Sweet): “The head of the nation’s second-largest bank said consumers are spending ‘at a faster rate’ than he’s ever seen but he remains concerned about how inflation and supply-chain issues will influence the economy going into the winter… Bank of America Chairman and CEO Brian Moynihan said spending on the bank’s debit and credit cards has surged as the economy recovered from recession. But Moynihan also said a recent decline in consumer sentiment… may indicate higher costs are adding to Americans’ frustration with the ongoing pandemic. ‘(The consumer) is earning more money, but now they are worried that these costs are going to go up faster than their wages,’ he said. ‘Also, frankly, the constant ebb and flow of this virus weighs on people’s minds over time.’”

December 11 – Bloomberg (Lisa Lee): “The U.S. went on a borrowing binge last year and the hangover could make it harder for the Federal Reserve to fight inflation without crashing the economy. Corporate debt has surged $1.3 trillion since the start of 2020 as borrowers took advantage of emergency Fed action as the pandemic spread, slashing interest rates and backstopping financial markets to keep credit flowing. More debt held by more companies suggests potential risks as borrowing costs rise from currently low levels.”

Fixed-Income Bubble Watch:

December 15 – Bloomberg (Joe Mysak): “By the time you read this, the morning’s debt auctions will be in the history books and so will a new record year in the municipal bond market, with the 2021 sales tally of $455.8 billion just nosing ahead of last year’s historic pace… That’s surprising. As recently as September, analysts were lamenting that 2021 wouldn’t turn out to be the year of gangbuster issuance that they expected. Which just goes to show that forecasts for everything from the threat of higher interest rates to the economic hit from the pandemic just can’t keep the municipal market down.”

China Watch:

December 15 – Financial Times (Chan Ho-him and William Langley): “Two doses of the Chinese-made Sinovac vaccine, one of the most commonly used jabs in China and around the world, provide ‘insufficient’ antibodies against the Omicron coronavirus variant, according to researchers in Hong Kong. The findings… by the University of Hong Kong have stoked anxiety as Omicron surges in many parts of the globe and the first two cases were detected in mainland China this week. China has administered more than 2.5bn doses of a COVID-19 vaccine — most of them Sinovac or Sinopharm — and adopted a ‘zero COVID’ strategy that has subjected vast numbers of people to compulsory government quarantine. The new coronavirus strain had already raised questions over the efficacy of Chinese vaccines and Beijing’s ability to keep the virus under control.”

December 14 – Bloomberg: “China’s property industry slump persisted in November as home prices fell for a third month and sales dropped, hurting growth in the world’s second-largest economy. New-home prices in 70 cities… declined 0.33% last month from October when they fell 0.25%... Home sales slid 17% from a year earlier, improving slightly from a 24% decrease in October… Sentiment in China’s home market has been dented by a cash crisis among property developers following a regulatory clampdown on excessive leverage in the industry. Officials have eased up in recent weeks as their priority shifts to shielding the economy from the slowdown.”

December 12 – Bloomberg: “Construction cranes stand idle in China’s Yunnan Province, on the easternmost edge of the Himalayas. Building has ground to a halt on Hainan, off the coast of Vietnam, and up in Heilongjiang, along the Russian border. Across China, tens of millions of square feet of unfinished apartment buildings -- the legacy of a real estate boom gone awry in 2021 -- are derailing countless dreams of owning a home. In a country where private homeownership was only legalized two decades ago, ordinary Chinese are discovering how quickly fortunes can turn in the housing market. Creeping price declines and plummeting sales in recent months have called into question the way freewheeling property developers have financed, built and marketed homes to the masses.”

December 15 – Reuters (Zhang Yan and Ryan Woo): “Chinese banks could see their bad loan ratio of property loans more than double by the end of 2021 from the middle of the year, S&P Global Ratings said, as headwinds in the Chinese property sector intensified in the second half. The non-performing loan (NPL) ratio of property loans at Chinese banks may rise to 5.5% by the year-end from 2.5% in mid-2021 and 2% at the end of 2020, S&P said… The stresses in the property sector, in which about one-third of developers are estimated to be in financial trouble, will also contribute about 20 bps to the overall 1.75% NPL ratio for 2021…”

December 14 – Bloomberg: “Its balance sheet is less than a third the size of China Evergrande Group’s and it doesn’t even crack the top 10 list of Chinese property companies by sales. But for many investors, Shimao Group Holdings Ltd. has suddenly become the single biggest worry in a Chinese real estate sector with no shortage of things to worry about. Long considered one of the industry’s healthier players, Shimao Group had until recently appeared largely immune to the credit-market turmoil that led to defaults this month by junk-rated rivals… That view has changed dramatically over the past week as unconfirmed speculation of payment difficulties at Shimao Group sent the company’s bonds tumbling from nearly 90 cents on the dollar to 59 cents as of Wednesday.”

December 16 – Bloomberg: “China’s financial regulator is coordinating negotiations between Shimao Group Holding Ltd. and some trust firms for loan extensions, according to people familiar with the matter, a sign that authorities want to prevent a cash crunch at the embattled developer.”

December 13 – Bloomberg: “A sudden plunge in Shimao Group Holdings Ltd.’s bonds and shares triggered renewed concern over the health of China’s property sector and threatens an already precarious rebound in the nation’s high-yield notes. Rising anxiety over Shimao’s ability to service its debt prompted the dramatic selloff on Monday, which spread to other firms. Trading was halted in six of the company’s yuan bonds after they tumbled, with one falling more than 50%. Declines continued on Tuesday.”

December 14 – Reuters (Samuel Shen, Stella Qiu, Roxanne Liu and Ryan Woo): “Multiple companies have suspended operations in one of China's biggest and busiest manufacturing hubs as authorities double down to contain a COVID-19 outbreak, halting some production of goods from batteries and clothing to textile dyes and plastics. Zhejiang has reported 217 locally transmitted cases with confirmed symptoms in just eight days since the first case on Dec. 6… Tens of thousands are in quarantine and some domestic flights have been suspended as a national health official said the outbreak in three cities - Ningbo, Shaoxing and Hangzhou - was developing at a ‘relatively rapid’ speed.”

December 16 – Bloomberg (Sofia Horta e Costa): “Chinese creditors have sued China Evergrande Group (EGRNF) for more than $13 billion in allegedly overdue payments, according to a report. A Chinese court assigned to handle civil lawsuits against Evergrande accepted 367 cases, with claims totaling 84 billion yuan ($13.2bn)…”

December 14 – Bloomberg (Ye Xie): “Last week marked a clear policy pivot by Beijing to shore up growth. The tail risks of a hard landing and policy mistakes have been reduced. While it’s unclear how far Beijing will go to stimulate growth, given the structural cap on housing investment, the ‘China reflation’ trade is gaining traction. Three of JPMorgan’s top 2022 trades involve bullish calls on Chinese assets…”

December 14 – Bloomberg (Nikos Chrysoloras and Ksenia Galouchko): “China’s battered stocks present a buying opportunity, as most of the headwinds facing the country’s economy are now priced in, according to Goldman Sachs…”

Central Banker Watch:

December 13 – New York Times (Liz Alderman): “The European Central Bank’s top task is to keep inflation at bay. But as the cost of everything from gas to food has soared to record highs, the bank’s employees are joining workers across Europe in demanding something rarely seen in recent years: a hefty wage increase. ‘It seems like a paradox, but the E.C.B. isn’t protecting its own staff against inflation,’ said Carlos Bowles, an economist at the central bank and vice president of IPSO, an employee trade union. Workers are pressing for a raise of at least 5% to keep up with a historic inflationary surge… The bank says it won’t budge from a planned a 1.3% increase.”

December 16 – Reuters (Dave Graham): “Mexico's central bank… stepped up efforts to rein in surging inflation, raising its benchmark interest rate by 50 bps to 5.50%, outpacing market expectations and pushing up the peso currency against the dollar. The decision to increase rates for a fifth consecutive meeting as inflation runs at its highest level in two decades split the Bank of Mexico's board. Four of its five members opted for a 50-point hike and one for a 25-point increase.”

December 15 – Financial Times (Sophia Rodrigues): “The Reserve Bank of Australia may end its asset purchase program as early as February, said governor Philip Lowe, in the latest shift by a global central bank towards tighter monetary policy. Lowe said… an early end to the RBA’s quantitative easing program — under which it buys government bonds at a pace of A$4bn (US$2.9bn) a week — was one of three options discussed at a recent board meeting.”

Global Bubble Watch:

December 14 – Bloomberg (Alexandra Muller and Michael Msika): “If 2021 was a big year for European deal-making, 2022 could be even better, with potential buyers seeking to put increasing amounts of cash to use. M&A in the region is on course for its best year since 2007, with the value of all pending and completed deals standing at $1.8 trillion… That represents ‘almost two years in one,’ according to Philipp Beck, EMEA head of M&A at UBS Group AG. For 2022, Citi strategists led by Beata Manthey forecast growth of 15% in deal making.”

December 13 – Financial Times (William Langley): “Private equity groups are planning to cut their exposure to Chinese real estate as concerns mount over the health of the sector following the default last week of indebted developer Evergrande. Coller Capital, a London-based private equity specialist, said… almost a third of groups with exposure to China would decrease their investments in the country’s real estate sector over the next three years. Not one investor said they planned to increase their investments.”

December 14 – Financial Times (Hudson Lockett, Stephen Morris and Joshua Franklin): “It took just five months from going public in New York for Didi Chuxing, the Chinese ride-hailing platform, to beat a humiliating retreat. Didi, which listed overseas despite warnings from Beijing to delay because of data security concerns, confirmed this month it would delist from the New York Stock Exchange and prepare to go public in Hong Kong. The move has prompted talk of the end of Wall Street’s long and lucrative trade of taking fast-growing Chinese companies public in New York — and of whether US investment banks might lose out if Hong Kong becomes the only destination for offshore listings by China’s hottest start-ups.”

EM Watch:

December 17 – Associated Press: “Turkey’s currency crashed to an new all-time low against the dollar Friday, a day after the Central Bank again lowered a key interest rate despite surging consumer prices, a move in line with President Recep Tayyip Erdogan’s unconventional economic policy. The lira’s fall prompted the Central Bank to intervene by selling off more foreign currency. It was the bank’s fifth intervention in recent weeks to attempt to prop up the lira.”

December 16 – Wall Street Journal (Jared Malsin and Caitlin Ostroff): “Turkey’s central bank bowed to political pressure to slash interest rates, defying soaring inflation and deepening a currency crisis that has dogged the economy. The central bank lowered its benchmark rate to 14% from 15% on Thursday, its fourth-consecutive rate cut since September. Previous rate cuts demanded by Turkish President Recep Tayyip Erdogan triggered a collapse in the Turkish lira. The currency has lost 40% of its value against the dollar since September…”

December 17 – Bloomberg (Selcan Hacaoglu): “The anger sweeping along highways linking the humble hometown of Turkey’s leader and his plush lodgings in Ankara’s presidential palace is flashing a code red warning for Recep Tayyip Erdogan. Tea growers, fishermen, small retailers, café staff and gas-station attendants -- some of the typically low-paid, laboring Turks who have formed the backbone of Erdogan’s support over his two decades atop Turkish politics -- are giving up on the ruling party as the cost of living surges.”

December 16 – Bloomberg (Firat Kozok and Burhan Yuksekkas): “Turkey’s minimum wage will rise 50% in 2022 to help offset living costs that have surged as the central bank unleashed a series of lira-weakening interest-rate cuts to support President Recep Tayyip Erdogan’s push to rewire the economy.”

December 15 – Bloomberg (Matthew Boesler and Olivia Rockeman): “For decades, Chileans watched from afar as their South American neighbors grappled with galloping inflation, financial crashes and extreme political swings, destabilizing forces that compelled the wealthy to send hundreds of billions of dollars to havens in Switzerland, the Cayman Islands or the U.S. But now, the long-stable Andean nation is getting a taste of that turmoil. A mix of social upheaval, plans for a new constitution and the most polarized election in recent memory is sapping Chileans’ faith in their currency. The pace of foreign outflows from individuals and non-financial companies has accelerated, reaching $8.8 billion in the six months through August and $24.3 billion in the past two years… That’s equivalent to more than 9% of annual gross domestic product.”

December 16 – Bloomberg (Fabian Cambero): “Chile is set to vote for a new president on Sunday, with a young former student leader Gabriel Boric on the left battling far-right conservative Jose Antonio Kast, in the most polarized election since the country's return to democracy in 1990. An at times heated campaign has seen Kast play up Boric's alliance with the Andean country's Communist Party, while Kast himself has come under fire for his defense of the dictatorship of General Augusto Pinochet that ended three decades ago… ‘What we're seeing here is a debate stuck in the cold war trenches, of communism versus fascism,’ said Kenneth Bunker, director of consultancy Tresquintos…”

December 15 – Bloomberg (Matthew Malinowski): “Chile’s central bank raised its inflation forecasts for this year and next, hours after it lifted the key interest rate for the fourth straight meeting amid the fastest economic growth on record. Prices will rise 6.9% this year and 3.7% in 2022, up from previous forecasts of 5.7% and 3.5%, respectively, according to the bank’s monetary policy report…”

December 11 – Wall Street Journal (Samantha Pearson): “Inflation is surging in Brazil, forcing a country with one of the highest death rates from COVID-19 to grapple with the economic fallout of the pandemic. While the global economy is forecast to rebound more than 4% next year…, more economists expect Brazil to remain stuck in recession during 2022 as it battles one of the world’s highest annual inflation rates of 10.7%. ‘Brazil really stands out—its inflation rate has risen much faster than almost any other emerging economy, and you can really see that hitting consumers,’ said William Jackson, chief emerging-markets economist at… Capital Economics.”

December 13 – New York Times (Matt Phillips, Carlotta Gall, Flávia Milhorance and Benjamin Novak): “To all those who would pose a challenge to Jair Bolsonaro in Brazil’s coming presidential election, including the press, the Supreme Court and liberals, the embattled right-wing leader has an answer: ‘Only God removes me.’ But Mr. Bolsonaro might be unseated by an unexpected problem that his political playbook has no easy answer for: inflation. Prices are climbing faster than they have in almost two decades in Brazil, a country with a relatively recent history of disastrous inflationary episodes. The currency has steadily declined in value, losing roughly 10% against the dollar in the last six months alone… Mr. Bolsonaro is among a generation of right-wing populists who, in the past decade and a half, have risen to power in democracies like Turkey, Brazil and Hungary, and whose reigns have coincided, at least at first, with periods of solid economic performance in those countries.”

Europe Watch:

December 14 – Associated Press (Samuel Petrequin): “Omicron is expected to be the dominant coronavirus variant in the European Union’s 27 nations by mid-January, the bloc’s top official said Wednesday amid concerns that a dramatic rise in infections will leave Europe shrouded in gloom during the holiday season. European Commission President Ursula von der Leyen said the EU is well prepared to fight omicron with 66.6% of its population fully vaccinated.”

December 13 – Reuters (Paul Carrel): “German wholesale prices rose by 16.6% on the year in November…, recording their biggest annual rise since data collection for the measure began in 1962 and suggesting higher consumer prices may follow. The price measure is widely considered an indicator of future inflationary tendencies as wholesale trade is the hinge between manufacturers and end-customers.”

December 16 – Bloomberg (Jana Randow): “The Bundesbank predicts German inflation will remain above 2% through 2024 -- an outlook that will amplify calls within Europe’s largest economy for a speedy removal of monetary stimulus. Outgoing President Jens Weidmann is warning that price pressures could be even stronger and warned that the European Central Bank mustn’t ignore those risks. The central bank sees consumer prices rising an average 3.6% in 2022 before slowing to 2.2% in the subsequent two years…”

December 14 – Reuters (Michael Nienaber): “Persistent supply bottlenecks and a fourth wave of coronavirus infections in Germany are further delaying the recovery of Europe's largest economy from the pandemic, the Ifo institute said… as it slashed its growth forecast for next year… Coupled with the current surge in overall prices, Germany is now facing several winter months of zero growth and unusually high inflation, a combination described by economists as stagflation.”

December 15 – Reuters (David Milliken and Andy Bruce): “British inflation surged to its highest in more than 10 years in November, jumping to 5.1%... Price pressure from a broad range of consumer goods and services - but especially petrol, clothing and footwear - lay behind the increase in inflation to its highest since September 2011… The reading exceeded all forecasts in a Reuters poll of economists, which had pointed to a rise of 4.7% from October's 4.2%.”

Japan Watch:

December 17 – Reuters (Leika Kihara): “The Bank of Japan… dialed back emergency pandemic funding but maintained ultra-loose policy and extended financial relief for small firms, cementing expectations it will remain among the most dovish central banks for the foreseeable future. BOJ Governor Haruhiko Kuroda said borrowing costs will remain low in Japan even as other central banks hike interest rates, stressing the roll-back of emergency funding was in no way a prelude to a full-blown withdrawal of monetary stimulus.”

Social, Political, Environmental, Cybersecurity Instability Watch:

December 13 – Reuters (Lisa Shumaker and Andrea Januta): “Extreme weather events in 2021 shattered records around the globe. Hundreds died in storms and heatwaves. Farmers struggled with drought, and in some cases with locust plagues. Wildfires set new records for carbon emissions, while swallowing forests, towns and homes. Many of these events were exacerbated by climate change. Scientists say there are more to come – and worse – as the Earth's atmosphere continues to warm through the next decade and beyond.”

December 13 – Reuters (Cheney Orr): “At least 100 people were feared dead in Kentucky after a swarm of tornadoes tore a 200-mile path through the U.S. Midwest and South, demolishing homes, levelling businesses and setting off a scramble to find survivors beneath the rubble… The powerful twisters, which weather forecasters say are unusual in cooler months, destroyed a candle factory and the fire and police stations in a small town in Kentucky, ripped through a nursing home in neighboring Missouri, and killed at least six workers at an Amazon warehouse in Illinois.”

Leveraged Speculation Watch:

December 10 – Financial Times (Gary Silverman): “The first weekend in December was no fun for cryptocurrency investors. As Friday night gave way to Saturday morning on Wall Street, prices of the leading tokens plunged, with bitcoin losing about a fifth of its value. Exactly who was selling remains a mystery, but a tantalizing clue has been dropped by one of the more plugged-in people in the digital asset world: Brian Brooks. A top banking regulator under Donald Trump, he has served as chief legal officer of one crypto exchange, Coinbase (COIN)… and now heads bitcoin miner Bitfury. Appearing at a hearing of the House of Representatives Financial Services Committee…, Brooks raised the possibility that the crypto rout could have involved as few as one or two big players trying to unload large leveraged positions in a 24/7 market that stays open when most people are trying to get some sleep.”

December 15 – Bloomberg (Sridhar Natarajan and Katherine Burton): “Anchorage Capital Group plans to shut its $7.4 billion hedge fund, Anchorage Capital Partners, and return money to all of its investors…. Anchorage will focus on its $18 billion structured-credit business and the $4 billion it manages in longer-lockup vehicles.”

Geopolitical Watch:

December 15 – Bloomberg (Ilya Arkhipov and Andrey Biryukov): “Chinese President Xi Jinping hailed relations with Russia as better than an alliance in a video call with President Vladimir Putin…, as the two leaders made a show of solidarity amid rising tensions with the West. Xi ‘said that although they are not allied, their effectiveness even exceeds this level,’ Kremlin foreign policy aide Yuri Ushakov told reporters… ‘Such a figurative expression very accurately reflects the essence of what is happening now in relations between our two countries.’ Calling Putin an ‘old friend,’ Xi said the Russian leader had ‘firmly supported China in defending its core interests and opposed attempts to divide China and Russia,’ Chinese state broadcaster CCTV reported. ‘I highly commend this,’ Xi told Putin, adding he’s willing to roll out new plans for cooperation in various areas.”

December 15 – Reuters (Anastasia Lyrchikova): “Russia and China should stand firm in rejecting Western interference and defending each other's security interests, presidents Vladimir Putin and Xi Jinping agreed in a video call… Their conversation… underscored how shared hostility to the West is bringing Moscow and Beijing closer together. ‘At present, certain international forces under the guise of 'democracy' and 'human rights' are interfering in the internal affairs of China and Russia, and brutally trampling on international law and recognized norms of international relations,’ China's state-run Xinhua news agency quoted Xi as saying. ‘China and Russia should increase their joint efforts to more effectively safeguard the security interests of both parties.’”

December 11 – Reuters (Andrea Shalal): “U.S. President Joe Biden… said he told Russian President Vladimir Putin that Russia would pay ‘a terrible price’ and face devastating economic consequences if it invaded Ukraine. Biden told reporters the possibility of sending U.S. ground combat troops to Ukraine in the event of a Russian invasion was ‘never on the table,’ although the United States and NATO would be required to send in more forces to eastern flank NATO countries to beef up their defenses.”

December 12 – Reuters (Alexander Ratz and Humeyra Pamuk): “Russia faces massive consequences and severe costs if President Vladimir Putin attacks Ukraine, the Group of Seven warned in a statement… U.S. intelligence assesses that Russia could be planning a multi-front offensive on Ukraine as early as next year, involving up to 175,000 troops. The Kremlin denies it plans to invade and says the West is gripped by Russophobia. Moscow says the expansion of NATO threatens Russia and has contravened assurances given to it as the Soviet Union collapsed in 1991.”

December 17 – Reuters (Gabrielle Tétrault-Farber and Tom Balmforth): “Russia said… it wanted a legally binding guarantee that the NATO military alliance would give up any military activity in Eastern Europe and Ukraine, part of a wish list of ambitious security guarantees it wants to negotiate with the West. The demands form a package that Moscow says is an essential requirement for lowering tensions in Europe and defusing a crisis over Ukraine, which Western countries have accused Russia of sizing up for a potential attack - something it has denied.”

December 11 – Reuters (Cheney Orr): “A top Iranian military official warned… of a ‘heavy price’ for aggressors…, after a report of U.S. and Israeli plans for possible military drills to prepare for strikes against Iran's nuclear sites if diplomacy fails. ‘Providing conditions for military commanders to test Iranian missiles with real targets will cost the aggressors a heavy price,’ Nournews, affiliated with Iran's top security body, said… A senior U.S. official told Reuters… U.S. and Israeli defense chiefs were expected to discuss possible military exercises that would prepare for a worst-case scenario to destroy Iran's nuclear facilities should diplomacy fail and if their nations' leaders request it.”

December 13 – Financial Times (Gideon Rachman): “For decades, American military planning was based on the idea that the US should be able to fight two wars, in different parts of the world, simultaneously. But even the gloomiest strategists did not plan for three wars at the same time. The administration of Joe Biden, however, is currently facing militarized crises in Europe, Asia and the Middle East. Collectively, they amount to the biggest challenge to America’s global power since the end of the cold war. American officials have briefed that Russia is planning an invasion of Ukraine ‘as soon as early 2022.’ Meanwhile, Lloyd Austin, America’s defense secretary, has warned that China’s military manuevers near Taiwan look like rehearsals for a full-scale invasion. Iran may also be weeks away from creating enough fissile material to manufacture a nuclear weapon — an outcome the US has spent decades trying to stop.”

December 13 – Reuters (Alexander Marrow and Mark Trevelyan): “Russia said… it may be forced to deploy intermediate-range nuclear missiles in Europe in response to what it sees as NATO's plans to do the same. The warning from Deputy Foreign Minister Sergei Ryabkov raised the risk of a new arms build-up on the continent, with East-West tensions at their worst since the Cold War ended three decades ago. Ryabkov said Russia would be forced to act if the West declined to join it in a moratorium on intermediate-range nuclear forces (INF) in Europe… Lack of progress towards a political and diplomatic solution would lead Russia to respond in a military way, with military technology, Ryabkov told Russia's RIA news agency.”

December 14 – Reuters (Humeyra Pamuk): “Secretary of State Antony Blinken touted… a U.S. strategy to deepen its Asian treaty alliances, offering to boost defense and intelligence work with partners in an Indo-Pacific region increasingly concerned over China's ‘aggressive actions’. On a visit to Indonesia, Blinken called the Indo-Pacific the world's most dynamic region, where everyone had a stake in ensuring a status quo that was without coercion and intimidation, making a barely veiled reference to China. He said the United States, its allies and some South China Sea claimants would push back against any unlawful action. ‘We'll work with our allies and partners to defend the rules-based order that we've built together over decades to ensure the region remains open and accessible,’ Blinken said…”